If you are underwater on your home loan, it essentially means that you owe your lender more money than your home is worth. This is not a situation that any home buyer wants to be in, but it happens more often than you may think.
If you are underwater on your mortgage, here’s what you need to do.
How to Know if You Are Underwater on Your Mortgage
Find out how much you still owe on your mortgage. A recent mortgage statement or your online account will have this information. If you can’t find it, contact your lender.
Next, find out what exactly your home is worth. There are several ways to estimate the value of your home, but some are more accurate than others. If you just want an idea, talk to an experienced real estate agent in your area. For a more accurate figure, hire an appraiser.
Subtract the amount you owe on your mortgage from your home’s current market value to figure out if you are underwater on your mortgage.
What Are Your Options?
Option 1: Stay in Your Home and Build Equity
Staying in your home and paying off your loan slowly takes a lot of patience and discipline. To speed up the repayment process, you may need to get a second job or start a side hustle. You will also have to make sacrifices—for example, living on a tight budget and putting all your extra money toward your loan.
Option 2: Refinance
If you’re underwater on your mortgage, you can refinance through the HARP program. The program was created by the government in 2008 in response to concerns about the growing number of homeowners who were “underwater” on their mortgages.
Option 3: Sell Your Home and Repay the Loan
If you don’t want to stay in our home, the best way out of an underwater mortgage is by selling your home and using the proceeds to repay your loan balance. You may also have to put your savings toward the loan if you are underwater by a lot.